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UN Convention on Contracts for the International Sale of Goods applies to certain software license agreements

UN Convention on Contracts for the International Sale of Goods applies to certain software license agreements

UN Convention on Contracts for the International Sale of Goods applies to certain software license agreements

07.01.2016

The Canadian-based software supplier Corporate Web Solutions Ltd. (“CWS”) and a Dutch customer concluded an online license agreement for software that can generate diagrams and other graphic reproductions of processes.

 

The Dutch customer transferred his downloaded copy of the licensed software to the company Vendorlink B.V. of which he was a director. CWS objected to this transfer and decided to terminate the agreement with Vendorlink conditionally, insofar as a license agreement existed between CWS and Vendorlink. The dispute came before court, and the court had to determine whether the software license agreement qualified as a purchase agreement, and whether the right of ownership of the downloaded copy of the software had in fact passed to Vendorlink.

Since the software license agreement was an international agreement, the court discussed the applicability of the United Nations Convention on Contracts for the International Sale of Goods (“the Convention”). In its interpretation of the Convention, the court explained that it must take into account the international nature of the Convention, the need to promote uniformity in its application, and the observance of good faith in international trade. Furthermore, the intention of the parties with respect to their agreement was a decisive factor for its interpretation, not the title of the agreement. The court pointed out that the term “movable goods” in the Convention also includes intangible goods, such as downloaded copies of software. Therefore, software that is not delivered in a tangible form can be the object of a sales agreement, so software falls under the scope of the Convention.

The court then considered whether the license agreement qualified as a purchase agreement. To answer this, the court applied the guidelines in the UsedSoft case, which were set out by the European Court of Justice (“ECJ”). In the UsedSoft decision, the ECJ held that an agreement consisting of a (i) user right that is not limited in time, in return (ii) for payment of (ii) a one-time fee, can be qualified as a purchase agreement.

With respect to the CWS software license agreement, the court noted that the agreement was titled “license agreement”. This license agreement stated explicitly that the software was licensed, not sold, and that the rights under the agreement could not be transferred. These terms therein indicate that it was CWS’s intention to provide its customers with merely a right to use the software, not with the ownership of it. However, this intention was not apparent from the actual interpretation of the license agreement. After all, the right to use the software was not limited in time, which indicates that the agreement was a purchase agreement. Furthermore, the required fee for the software had to be paid once and in full. Therefore, the characteristics of the license agreement in question did not differ from those of a purchase agreement.

The fact that the software was transferred under the contractual restrictions in the license agreement, such as those pertaining intellectual property rights, did not preclude the transfer of ownership rights. In addition, the court held that CWS’ retention of ownership by unlawfully terminating the license agreement was legally void. Referring to the UsedSoft judgment, the court reiterated that contractual clauses prohibiting the transfer of ownership completely, such as the clause set out by CWS in the license agreement, are not legally binding, hence void.

The court applied the UsedSoft requirements to the CWS international license agreement. It concluded that the software license agreement fulfilled the requirements of the Convention and therefore qualified as a purchase agreement of movable goods. The Dutch customer obtained the right of ownership of the copy of the software and could legally transfer his rights to Vendorlink. CWS’ termination of the agreement therefore does not affect the ownership rights of Vendorlink in relation to the purchased copy of the software.

Source: District Court Mid-Netherlands 25 March 2015, ECLI:NL:RBMNE:2015:1096

This article was co-written by Friederike van der Jagt.

 

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